The OECD's Global Minimum Tax (Pillar Two) is not just a compliance exercise for existing multinationals; it is a fundamental shift that must be factored into any international expansion strategy. For UK companies looking to India — and Indian firms expanding to the UK — the era of choosing expansion locations primarily based on low-tax incentives is ending. In a Pillar Two world, the strategic value of a jurisdiction is increasingly determined by its operational advantages, talent pool, and market access, rather than its statutory tax rate.
The End of Tax Arbitrage
Historically, many expansion strategies involved locating high-value functions (like IP ownership or regional headquarters) in jurisdictions with very low corporate tax rates. Pillar Two's 15% effective minimum tax eliminates the benefit of this arbitrage. If the effective tax rate in a subsidiary's jurisdiction is below 15%, the parent company's jurisdiction will impose a "top-up tax" to bring the total to 15%. For UK-India groups, this means that even if you benefit from specific tax holidays or incentives in one country, you may end up paying the difference to the tax authority in the other.
Substance-Based Income Exclusion (SBIE)
Pillar Two does recognize that businesses with real economic substance should be treated differently than "shell" companies. The Substance-Based Income Exclusion (SBIE) allows companies to exclude a portion of their income from the Pillar Two calculation based on the value of their payroll costs and tangible assets in a jurisdiction. For UK companies with substantive operations in India (factories, R&D centres, large service teams), the SBIE can significantly reduce the impact of any top-up taxes, reinforcing the importance of having real "boots on the ground" in expansion markets.
Data as the New Compliance Currency
The compliance burden of Pillar Two is immense. It requires groups to collect and report over 200 data points for every jurisdiction in which they operate. For many UK-India groups, the existing financial systems are not designed to capture this level of detail at a jurisdictional level. An expansion strategy now must include a "data readiness" plan — ensuring that as you enter new markets, your systems are configured to capture the tax, accounting, and payroll data required for GloBE (Global Anti-Base Erosion) reporting from day one.
Strategic Location Selection in a Post-Pillar Two World
In the future, the decision to expand into India or the UK will be driven by "True Cost of Operations" rather than "After-Tax Cost of Operations." Factors like the quality of digital infrastructure, the ease of doing business, the availability of skilled labour, and the proximity to customers will become the primary drivers of location selection. Tax will still be important, but it will be about managing compliance and avoiding double taxation rather than seeking zero-tax outcomes. Companies that adapt their expansion playbooks to this new reality will be better positioned to build sustainable, globally competitive businesses.
Payline Worldwide's international expansion and tax teams help businesses model the impact of Pillar Two on their growth strategies. We provide multi-jurisdictional tax modelling, substance reviews, and data readiness assessments to ensure your expansion is built for the future. Contact us to discuss your post-Pillar Two expansion strategy.
